If Per Byte Pricing Is 'Only Fair' Why Have Telcos Ditched It For Mobile Data Plans?

from the hypocrisy-in-action dept

For the past couple of years, telcos and cable companies have been pushing for metered broadband, usually with the bogus claim that "it's not fair" for a light user to be subsidizing a heavy user. This is a neat little disingenuous trick that implies "light users" would see their bills decrease under metered billing plans. However, the same telcos pushing for metered broadband on connections are the same telcos who have wireless operators as well... and for mobile users, they're doing away with the metered billing option at the lower end, forcing everyone into a much higher priced all-you-can-eat model. Oops. Metered billing has nothing to do with fairness. It's an attempt by telcos to squeeze more money out of customers in a market where they often have little in the way of competitive options. Because, as we've seen, when there's real competition, it's a lot more difficult for providers to offer such plans.

The problem is that, in the U.S. , the FCC/government et al regulate infrastructure for the sole benefit of corporations and the rich at public expense. In other countries where you don't have this problem more bandwidth is offered at lower prices.

Money is not the only form of capital. I think this may be a good decision by the telcos that would ultimately lead to a better experience for the customer. I recently encountered a similar situation when trying to figure out pricing for one of my own ventures and came to the same conclusion.

The reason being that:
metered billing options are complex but fair
tiered models are a good compromise between complexity and fairness
single-rate is as simple as it gets, but lumps everyone together

The important factor in choosing from among these models would be to look at and compare the cost of complexity to real dollar cost for the customer. In this case, per byte pricing is probably way too much information for the consumer. Most infrequent users probably would care more about the complexity in setting up this new-fangled computer works than have to call billing ten times in order to save $15 per month. Average users would be paying the same dollar amount anyways and would be saving the cost of complexity. Heavy users care the most about the service and would be the most likely to complain or switch providers when an option becomes available; consequently they are getting a 'steal' in terms of dollar cost, and remain happy.

All parties involved are better off overall. This is indeed a money-grab by the telcos, but if it is for the mutual benefit of consumers I don't see a problem with that.

Re:

Re:

"...tiered models are a good compromise between complexity and fairness..."

But tiered models already exist. That's why you can buy a 1MB plan, a 3MB plan, a 7MB plan, or a 15MB plan. Those options already put the heavy users into a higher-rate plan, because heavy users will very rarely be satisfied with the lower-speed connections.

Re:

Apples: metered bandwidth. A product of the era in which the home internet was established, when a T1 connection could cost like a small car each month. Technology to move more data at a reasonable cost wasn't around. As that technology has come, so has heightened demand, making it an attractive business proposition to maintain caps. The caps in place are not a major issue for the vast majority of internet users. Oh yeah, there is that thing about wiring and physical installation, etc.

Oranges: 3G, 3.5G, etc. Started out as a higher speed service, and the rates charged are in keeping with the natural of the game. Outside of the very few people tethering through their phones, most phone users are checking the weather, surfing pr0n, and reading blogs. The best part? The consumers pay for the phones, so the wireless companies are not forced to run a whole bunch of wire. Bandwidth usage is limited not by the rate plan, but rather by the available connectivity.

Basically, home / wired service has to meet certain speed requirements. If you have a 5mbps connection, people will go to speedtest and check it. Your wireless? No speed promises (up to 7 mpbs!), you get what you get.

In the end, reasonable bandwidth caps are still a good solution for the vast majority of internet users. The only ones complaining aren't typical users.

Re:

"In the end, reasonable bandwidth caps are still a good solution for the vast majority of internet users. The only ones complaining aren't typical users."

In the end they're a bad idea and the government should regulate them to force the prices down and the bandwidth up. Or they should allow free reign on competition. But instead the government instead unilaterally favors rich and powerful corporations at public expense and hence America is falling behind other nations in terms of bandwidth speed and price.

Re: Re:

(but in actuality I don't mind allowing ISP's do cap bandwidth PROVIDED there is perfect competition and the government doesn't do so much to limit competition in favor of big corporations at public expense. Because if they did try to cap bandwidth unreasonably in a free market then people would simply switch to competitors. But since the government does restrict competition they should then regulate the competition by disallowing caps and forcing a reasonable speed for a reasonable price, one that's competitive to deals people get in the countries that offer better bandwidth for cheaper prices).

Re:

Apples in wired world being discussed: bandwidth usage, as in total amount of bytes downloaded by the user.

Apples in wireless world being discussed: bandwidth usage, as in total amount of bytes downloaded by the user.

Difference: None.

Version for Dummies (that is, AC): 3G, 3.5G, etc. only refer to the throughput capability of a particular phone. It has nothing to do with the actual number of bytes someone loads, that is only dependent on the user.

Re:

"Oh yeah, there is that thing about wiring and physical installation, etc."

You're making a critical mistake here that seemingly every major player in the industry is making. The last mile problem WILL NOT BE SOLVED by capping aggregate data usage. This is exactly why charging per byte makes no sense. The last mile problem is caused by PEAK DEMAND not AGGREGATE USAGE.

Don't forget that bandwidth is a rate. And in fact, we all already have bandwidth caps - this is what 5mbps means. It's a cap on the rate at which we can receive data.

A usage cap is different all together and the reason it's an issue is because while the last mile is the major cost, usage caps will not solve this problem.

The reason P2P/Video streaming is an issue isn't because it's a lot of data. It's because it's a lot of data over a short period of time. Again - the key issue here is rate, not aggregate. To the telco's 1MB/h over 24 hours is preferable to 24MB/h over 1 hour.

The reason billing per byte doesn't make sense is because the marginal cost of transmitting a byte of data approaches ZERO. Economics demands that the cost to consumers approach this cost. Demand is another thing that fortunately, we pay for already.

Someone dealing with this mess at the governmental level needs to take a look at regulation in the energy industry. The energy industry faces the same problems that the telco's are facing and it should provide a great model for what to do in the telecom industry.

RE: AC Post 1

I believe you're confusing bandwidth and usage again.

"In other countries where you don't have this problem more bandwidth is offered at lower prices."

Remember bandwidth is a rate of transfer, so in what countries can you get more than my 20mbps FiOS connection? For $35 a month? Short of Japan and perhaps the Nordics? - Latin and South America? Let's use Mexico ... 1mbps ADSL, about $35 per month.
- Western Europe? Let's use Ireland as an example ... Eircom charges 40 euro/month for up to 7mbps ...30 euro for up to 3mbps.
- Australia? This is where bandwidth meets usage caps in pricing ... so you can get an 8mbps down connection (128kbps up) with 200MB/month for $30, if you want 25GB download it is $80/month ... and if you want to use the ultrafast cable service (30mbps in downtown Sydney and Melbourne, 17mbps where otherwise offered) it is $40/$90 respectively.

So please ... don't just make vague pronouncements ... because with a couple of google searches I've just disproved your theory on price in three seperate regions of the world (in none of my examples is it better than in the US for comparable service), I have shown that only 1 of the 3 offers comparable bandwidth (at a price premium) and that one utilizes usage caps that total destroy any price comparison with the US at usage over 1GB.

Re: RE: AC Post 1

I think he meant to say that, in other countries, the average connection is provided with higher bandwidth and at a lower cost premium...in the US, most people who live in major cities have an edge over the rest of us by quite a bit. You might be able to get your FIOS connection for $35 a month...but I am stuck with DSL or Cable, which both provide a 1-1.5 Mbps connection at almost $40 a month...

Refraining from using anecdotal evidence to make a universal negative will help. You might have a good connection for a decent price, but even if you are out in the boonies somewhere...study after study has shown that the US is VERY behind in bandwidth speed per cost ratio.

Re: RE: AC Post 1

Funny mistake you make. You argue YOUR own personal situation as if it is representative of the USA in general. This is a very common mistake for marketers and product developers, but less so for market researchers.

1) FiOS rocks, but do you know how many Americans have FiOS as an option?

2) Do you purchase any other Verizon service over that FiOS line, which is actually an integral part of the service? Think phone service, TV content, etc. If so, your Internet price may be subsidized by one of the other services.

To paraphrase your comments: I believe you're confusing reality with fiction again. "So please...don't just make vague pronouncements...because with a couple of Google searches I've just disproved your theory on price" from your own ISP.

If ISPs charge per bit

What happens to the ISP advertising income when the customers limit their usage? This could happen in several ways, dont surf as much or use more ad blocking. This might lead the ISP to whine about needing ad block regulations. It wont be long till the ISP starts telling its customer what software is authorized on their network.

Oversubscription is the real problem.

ISPs are like airlines they oversubscribe their channels and that is why is bad for them to let people use bandwidth. They sold more then they can deliver.

That is why they are trying to fool people into thinking that because someone is a heavy user is bad. In reality soon we all will be using the internet for very intensive tasks so any caps will only reduce creation of services in those countries that cannot legally provide them.

In the beginning, the internet was metered, it didn't work remember AOL sending all those shine plastic discs to everyone?

In Japan, South Korea, Taiwan, Hong Kong there is 1 Gb connections with no caps, the rest of the world is one generation behind asia and there(asia) they don't need metered and to be truthful they wouldn't dare put something like that on the table because people would just flock to another ISP. In asia the physical cables are separate from the ISP's, no ISP owns the cables but they all use the same infra-structure so they all pay to construct that infra-structure and compete with services, in every small town in an asia country there are 10-20 ISP's competing. Why it doesn't happen in other places?

There was a time when European and American companies where competitive but they are sissy's now. They wouldn't last a day in a real open market they don't know how to. They got lazy with legal crutches and government aid and that is why workers everywhere in america are hurting.

Re: Oversubscription is the real problem.

"ISPs are like airlines they oversubscribe their channels and that is why is bad for them to let people use bandwidth. They sold more then they can deliver."

Yes, that is how it's done. But it is without a doubt the most appropriate way to plan/capitalize/deploy a communication network. Similarly, we don't build every street in the country big enough to handle every car in the country at one time. We know that not everyone will ever drive each street, and those that do will not do it at the same time, so we build a certain number of lanes, based largely on our expectation of traffic load at peak times.

If you have a better way of planning and deploying a comm network, please submit it. You could be as famous as Alexander Graham Bell.

"Light" plans

If the telcos want to start offering lower-priced "light" plans with usage caps, more power to them. My grandparents would benefit from something like that.

Unfortunately, they're not. Instead, "light" users will pay the same, while charges for heavy users will become absolutely ridiculous.

In the end, though, doesn't bitrate really take care of this? Time Warner offers a 1MB plan in my area that is only about $25 a month. That's about the same as dialup. It's perfectly fast and convenient for e-mail, basic browsing, and the occasional YouTube video, but those heavy users watching hi-def streaming video and downloading content won't be happy with that speed. They are already paying more by paying for the additional bandwidth of a 7MB or 15MB connection. At least with TW, the light users already have an option not to subsidize the heavy users. So where is the supposed problem?

@dorp:

Where is the proof please I would like to see it.

From what I understand cable ISPs use a ring network that is susceptible to heavy usage, that is why they don't like VoIP, video streaming or P2P. Those services transfer large amounts of data for very long periods of time and they slow down the network. PONs on the other hand don't suffer from this because they can't be super oversubscribed like cable and they are deployed in a star configuration where each house have its own line to the router and don't need to worry about their neighbor habits(data stream).

Now on a total different matter, the reason to want caps or tiered schemes may be because the end game is to force higher data prices and offer "bargain" solutions to VoIP and Video without competition from others.

Re: @dorp:

Now on a total different matter, the reason to want caps or tiered schemes may be because the end game is to force higher data prices and offer "bargain" solutions to VoIP and Video without competition from others.

DING! we have a winner.

data caps are the new tiered internet. ISPs want to offer voice and video products, but have to compete with pure play prividers like skype and hulu.

so, if using skype, or vonage, or whomever applied to your cap, while using cable company phone did not, then you have your preferred tier. sure you can use vonage, but if you go over your cap it will cost you dearly, better play is safe and use our phone service instead.

Re: Re: @dorp:

I just wish the FCC (and the government and all the other unelected agencies) would stop uniformly acting in the best interest of rich and powerful corporations at public expense. They shouldn't be limiting competition the way they do, anyone should either be allowed to compete on the existing infrastructure or to build new infrastructure.

Re: @dorp:

Where is the proof please I would like to see it.

You read this blog often enough, the information is easy to get right here as Mike loves to point out that there is no bandwidth crunch and cites the studies for it. You are allowed to be more than just Anonymous Coward, you can even be Anonymous Searcher and Anonymous Learner! No need to spoon feed you.

well said

I wish you had written more about this subject. these companies are concerned with 'fairness,' only insofar that fairness is the most profitable policy for the company to adopt. in other words, 'fairness' is simply a convenient marketing package. it is no different than google's 'do no evil,' policy. it is absolutely meaningless, apart from convincing people into thinking that google would never intentionally deceive them when it comes to privacy policies and such.

Absent the silly rural users who expect a handout, any profitable marketplace will induce enough competition from 2 or more players to keep prices in check and give us ever greater bandwidth yields.

In the past ten years, my internet speed has increased from 9600bps to 10Mbps while the monthly cost has plummeted - a cycle that started when the government allowed the commercialization of the internet, rather than keeping it restricted to elites.

Please, keep the government's mitts off the process. I may not like my "greedy" cable and telco behavior, but it is FAR better than anything my "representatives" have produced in my lifetime.

Despair

I wish I could feel your anger, but I can't. I feel the despair of a 20gb limit at ~3Mbps. Australian telcos make American telcos look utopian. Luckily, I work at a university with an internet connection the equivalent of a small city...

@dorp:

Ok then, how about you get a network simulator and use a ring or bus topology and see it for yourself what happens when to many people get online. Cable ISP in general use a 10Gb hub with 1000 households(3 pcs per house) in one node so that should get you started.http://www.ece.gatech.edu/research/labs/MANIACS/GTNetS/index.html

It is good that you don't believe me. Do it for yourself and learn something new.

"Ok then, how about you get a network simulator and use a ring or bus topology and see it for yourself what happens when to many people get online."

Who the heck still uses bus topology for information trafficking. The old hubs do and wireless networks do but other than that why would you use it? In fact, it would be stupid because that means I can see my neighbors traffic on the Internet. and as far as ring topology, you're building a strawman. What about we use MESH topology or something similar.